The cost of car relicensing could fall about 40 per cent by next July - a drop the Automobile Association expects will result in fewer cash-strapped motorists flouting the law.

ACC Minister Judith Collins has signalled levy cuts of $480 million for the 2015/16 year. The Government will make a final decision after public consultation.

It is anticipated the bulk of the cuts would be for private motor vehicle levies, meaning the cost of relicensing a passenger car could fall by $130.

But whether motorists enjoyed the full reduction might still depend on the safety rating of their vehicle, the Automobile Association says.

AA spokesman Mark Stockdale said the levy cuts would be welcome news to car owners at a time when motor vehicle licensing fees were higher than ever.

"At the moment, you're paying roughly $287 to re-license a petrol car, so if all of that 40 per cent reduction came through, that's going to bring it down to about $160."

For motorists with diesel private vehicles, the cut could mean a drop from $430 to $300.

Mr Stockdale said the long-expected cuts reflected the fact that ACC's Motor Vehicle Account, funded by a levy included in the price of petrol and licensing fees, was now fully funded.

ACC was permitted to collect only as much money it needed to cover the cost of motor vehicle accidents, but levies had been high because the agency was also covering accidents from previous years.

"Now that we're no longer playing catch-up, costs are covering only those that occur in the year we pay for the levies," Mr Stockdale said.

The benefits of the cuts could still vary according to a proposed safety rating system, which would offer cheaper levies to safer cars.

The AA has previously backed the concept, which had proposed rating private passenger vehicles in one of four groups according to how well they protected occupants from harm in the event of a crash.

Mr Stockdale also expected that the cuts would lead to better compliance.

"A lot of people are struggling to pay for their licences, and we know that some people are actually choosing not to relicense at all and risking being fined by police.

"Anything to reduce the cost of licensing a vehicle will make it easier, and mean that less people are inclined to take risks because they cant afford it."

$130 in the pocket would make a difference

An extra $130 in Carey McLaughlin's pocket each year would be welcomed by the single mother-of-one.

Ms McLaughlin's income is less than $20,000 a year on a solo parent benefit combined with some contract work.

"So any sort of thing like that makes quite a difference."

The 43-year-old Cambridge woman said her car, a 2001 Mitsubishi Lancer Cedia, was vital to her livelihood doing odd jobs and for her 12-year-old daughter. She said it would be good to spend less on registration each year for the $5000 car, the most expensive she has owned.

Under National's 2014 Budget the ACC levy component of annual car registration, on average about $287, will drop by 40 per cent from July next year. However, Ms McLaughlin is not optimistic about where the savings will end up.

"It'll just get gobbled up in some sort of petrol increase ... Naturally that saving will go straight back into the spending pool."

She believed compulsory third party insurance was more important than registration. "We still have vehicles being driven around on the road and they don't even have third party ... And $130 a year would do it."